Imagine this: You’re midway through your fiscal year, and your sales team is gearing up for a final push to meet their targets. You have an eager team, a list of upcoming client meetings, and leads that are quickly turning into prospects.
Meanwhile, your customer service team receives urgent calls about service parts needed for in-use technology, and existing clients request additional devices due to increased patient care demands.
A few weeks later, your sales team reports successful device sales to clients in your pipeline for a while and begins entering orders into the ERP system as forecasted demand.
As an organization, you anticipate these fluctuations and welcome business growth. To prepare for these orders, you reach out to your regular CDMO to amend your regular, yearly PO to request more products with an end of year completion timeline.
Seems manageable, right? Wrong.
Despite the positive surge in orders, and the amended PO placed with your CDMO, there was no prior communication with your CDMO regarding your updated sales forecast, prior to the amended PO being placed.
So, instead of having the stock for an additional product build, they only have your standard maximum stock, which won’t be enough for you to deliver your existing and new orders.
Although you may be thinking “Well, why can’t they just make more product? I placed the updated order and there’s still a second half of the year for them to deliver on their end of the PO.”
Valid question that many go back to their CDMO with.
However, the forgotten piece to the puzzle is the lead time for the additional device parts, from both your CDMOs suppliers, and the CDMO themselves. To increase the quantity of products being made, your CDMO needs to source, build, stock and ship the increase in parts. In many scenarios, this can take anywhere from 8-52 weeks depending on the materials, complexity of the build, and more.
Suddenly, timelines are disrupted, inventory levels are insufficient, and what initially seemed like a seamless process turns into a nightmare.
Unfortunately, such scenarios are common in the MedTech industry due to the inherent fluctuations in demand for medical devices and the time-intensive nature of product development and manufacturing. All of which are exacerbated by the legacy transactional relationship that many OEMs have with their CDMO partners.
So, how can you avoid finding yourself in this situation?
Here’s how:
You maintain constant communication with your development and manufacturing partner about your needs.
Although this may seem obvious, legacy siloed operations are inherently transactional and function on OEMs placing a PO with their CDMO partner and leaving it at that.
In some cases, the OEM might provide their CDMO partner with a demand forecast at the beginning of the year when they place their initial PO but won’t go back to that forecast on a regular basis. Instead, they rely on amending the existing POs placed when demand changes and assume their CDMO can meet their needs.
In some industries, like the automotive industry, for example, this practice works and doesn’t lead to many issues. Mainly because the dealers can move their finished goods— the vehicles— amongst their stores as needed and without issue during times of supply chain disruptions.
But, in the MedTech industry, that’s not the case.
The MedTech industry’s demand is based on hospital expansions, patient number increases, end user needs, new procedure development, and more. Therefore, it’s a lot harder to predict the actual number of devices you’ll need.
When treating your development and manufacturing partner as members of your team rather than mere suppliers, you create a framework for transparency, trust, and shared accountability that avoids the scenario of inability to deliver your finished goods to your end users.
By fostering a collaborative relationship and establishing clear agreements that prioritize open communication, including a reliable forecast aligned with minimum and maximum stock numbers to anticipate contingencies, you can significantly mitigate the risk of encountering the panicked situations often associated with outdated transactional methods.
You rely on your development and manufacturing partner’s supply chain team to manage your inventory levels— the right way.
Yes, you read that right.
Companies like MPE Inc. can manage your inventory levels for you, eliminating the risk and need for your team and facility to maintain stable inventory levels. And, with the ability to ship and deliver finished goods to your end-users, your competitive edge can stay competitive.
By giving your partner, the insights that they need regarding your demand forecast, before placing your amended PO, a true partner can ensure that your inventory levels are always stable, and that there’s enough on hand to cover any scenario.
It’s all about your development and manufacturing partner knowing what they have, what you need, and when you need it by. At the end of the day, they only know what they know!
Here’s an example of what this looks like:
MPE Inc. partners with a large MedTech OEM who ships their products all throughout the globe. They have a variety of devices that have their own unique parts and needs.
To keep track of each device’s needs, this client opened their forecasting to our supply chain team, giving us a 2.5-year look ahead into their pipeline. From there, POs are placed in 15-month increments, giving our team plenty of time to obtain the needed inventory, and to maintain inventory levels.
For both components and finished goods.
By having a team solely focused on keeping track of their demand forecast— both on their end and ours— there’s little chance of there ever being an issue with their inventory.
Through constant review of their demand and with the proper checks and balances, financial coverage, and good risk analysis underway; the competitive edge of on-time delivery and quick development is at minimal risk of being lost.
But what are the risks with handing over your inventory management to your development and manufacturing partner?
Many who are new to this concept reply with a list of concerns, usually regarding the risks associated with handing over their inventory management to their development and manufacturing partner.
Understandable.
The most common concern is: What would happen if there were revisions to the parts in inventory, and how would it affect the ability to change over the parts?
In any inventory management scenario, there’s going to be risks. That’s a given.
But the right partner, and one that can see you from design to launch will have a system in place to change manage the integration of those new parts. If done correctly, you’ll still be able to utilize the current inventory that’s being held and can incorporate the new parts over time.
It all comes down to partnering with the right organization that can see your products throughout its entire life cycle and maintaining open communication with said partner.
With an agreement that includes demand forecasting transparency, your partner will have the ability to look ahead and work with you on a change management plan that won’t disrupt your current operations.
Handing over your inventory management to your development and manufacturing partner seems a lot scarier than it really is, and in the long run, includes many benefits.
You recognize that good inventory management and inventory levels are the output of reasonable demand forecasting accuracy.
Whether you have too much inventory on hand, or too little, it’s important to understand that your stockage is a direct result of demand forecasting and the communication plan in place with your partners.
It’s no secret that the COVID-19 Pandemic changed everything we thought we knew about supply chain management. With lead times, supply availability and changes in supply routes, there were many issues in the supply chain during the pandemic’s height.
After the pandemic, there was a lasting effect in all the above as well. This left many organizations at a loss of what to expect, and what to do moving forward. Many stuck in the legacy cycle started to point fingers and were at a loss as to why their levels, even years after the pandemic, weren’t stabilizing despite amending POs.
When the answer was right in front of them— inaccurate demand forecasting and closed communication channels.
Your forecasts are never going to be perfect, but if you and your team take the time to assess your numbers from the prior year and take into consideration where your numbers are falling now, it’s a lot more likely that you’ll be within a reasonable margin of error.
By putting in the work and effort to share and monitor your demand forecasts with your development and manufacturing partners, your inventory levels are even more likely to stabilize without excessive efforts.
Overall, setting you and your team up for the desired outcome- strong inventory management.
Quick Tip: Investigate areas of partnership expansion that can provide you with resources such as shipping services from your manufacturer’s facility.
Did you know that some development and manufacturing partners offer product shipping services that will deliver your goods to your end-users?
It’s true.
The MPE Inc. client in the earlier example utilizes these services as well and has seen significant savings because of it. By eliminating shipping from our facility to theirs, and then to the end-user, they not only see effective time savings, but cost savings as well.
With that, the MPE Inc. team can monitor the clients’ inventory levels and update them in real-time, mitigating the many risks associated with multiple hand-offs in finished goods delivery.
Partnering with a product developer and manufacturer that provides shipping services along with their inventory and supply chain management, is something to consider, if you haven’t already.
If you know how to predict and manage your demand, then you know how to maintain your inventory margins.
At the end of the day, accurate and proper inventory and supply chain management requires a proactive approach to demand forecasting and collaborative partnerships with your product development and manufacturing experts.
By keeping your lines of communication open with your development and manufacturing partner and treating them like the extension of your team that they are, the issues that you seem to always run into are a lot more likely to subside on their own.
That’s why choosing a partner offering design, engineering, inventory management, and manufacturing under one roof is ideal. A vertically integrated partner ensures that issues are uncovered and mitigated early—and makes your path to commercialization as quick and cost-effective as possible.
By embracing a supply chain platform approach that prioritizes market needs, and cost optimization, you can chart a course to sustainable success.